(Bloomberg) — Two of the biggest U.S. banks are gaining confidence that the pandemic won’t send the economy into a calamitous slide, even if they see a long path back to growth.
JPMorgan Chase & Co. and Citigroup Inc. set aside just $2.87 billion for loan losses in the third quarter, less than half what analysts expected and even lower than the charge-offs they had this period, in part because they’d already been aggressive in beefing up their reserves in the first half of the year. The lenders said they’ve been encouraged as consumers have been quick to pay down their credit-card bills and corporate borrowers have repaid the revolving credit lines they tapped at the start of the lockdowns.
Executives are still cautioning that the economy is in for a long grind: JPMorgan said it expects to see material losses in its consumer portfolio starting in the second half of next year, later than initially anticipated. And Citigroup said unemployment will probably be higher at the end of next year than initially expected.
But the banks’ actions indicate that some of the worst outcomes are now less likely to occur in the near-term even with the pandemic dragging on and lawmakers failing to agree on another round of fiscal stimulus.
“Our base case has improved a bit, but uncertainty is still high, 20 million are still unemployed,” JPMorgan Chief Financial Officer Jennifer Piepszak said. “We don’t think we’ll see real material losses emerge until the second half of next year because the consumer is in good shape.”
The smaller provisions helped JPMorgan and Citigroup notch better-than-expected earnings in the third quarter. Still, shares in both companies fell as investors worried that the quarter signaled a pause in pain from soured loans, rather than the end of the